MUMBAI: Investors looking to benefit from Indians' voracious appetite for jewellery may bet on Titan Company. A likely boost in consumption led by the revised pay commission for government employees, above normal monsoon and stability in gold prices could bring shares of gems and jewellery chains back in focus but analysts are recommending clients to stick to the leader in the business.

Titan shares, which have declined 2.23% in a month, have surged 11.49% to Rs403.70 in the last three months.

Since January, the stock, which is the favourite of investor Rakesh Jhunjhunwala, is up 15%. Rakesh and his wife Rekha together hold a little over 8% in the company .Though there are better stock performers in the sector of late, analysts believe many of them have benefitted from the euphoria in the broader market.

“Titan towers above the rest in the gems and jewellery space,“ said Abneesh Roy, Associate Director, Institutional Equities Research at Edelweiss Securities.

“We expect demand recovery led by a new version of the Golden Harvest Scheme (GHS) kicking in, preference of ww brand and a steady shift in preference to organised jewellers.“ The GHS allows customers to purchase jewellery from amounts saved every month.

Further, their focus on wedding jewellery could augur well this wedding season as it is a huge market. The revised government pay packets could also augment sales.Traditionally, personal transportation, housing, jewellery and durables have benefited from past pay commissions. This time is expected to be the same.

Amid euphoria about the company's growth prospects, there are concerns about the stock's rich valuations. According to Bloomberg estimates, Titan is trading at an estimated price to earnings (PE) ratio of 41.75 times while its peer P.C.Jeweller is trading at 16.59 times.

Some analysts are not perturbed by its premium valuations.

“Investors need not worry too much about multiples,“ said Pankaj Pandey, Head of Research, ICICI Securities . “Multiples do not capture all the positives and where there is growth, valuations tend to be on the higher side.“

Analysts have waved a red flag when it comes to gold prices. Though a hike in domestic gold prices positively impacts sales of these companies, it could also mean that customers will cut back on purchase.

Another concern is that the government has decided to ban cash ernment has decided to ban cash transactions of gold over Rs. 3 lakh in a bid to clamp down on black money. This should not affect the organised players but smaller businesses will face the heat. This is because a large portion of their trade, especiallyduring the wedding season, happens in cash.

“There is a huge unorganised pie in the gems and jewellery space,“ said Pandey. “Once more regulations come into play, it is the organised players that will do well.“